Conventional Loan

Last Updated: 03/24/2024

Loan Highlights

Residential buyers with good credit scores and stable income.
Credit score of at least 620 and a down payment of at least 3%.
Conventional loans offer competitive interest rates and terms for buyers with good credit.
Suitable for primary residences, second homes, or investment properties.
Can range from $100,000 to several million dollars, depending on the property value and borrower qualifications.

Federal Fund Rate + 1.50% Margin

*The mortgage interest rate calculation above is estimated. The subject borrower for that interest rate is as follow:

Interest rates: Typically fixed but can be ARM.
Loan terms typically range from 10 to 30 years.
Max LTV – 97% for first time home buyers
Max LTV – 95% for primary residence
Max LTV – 90% for second home
Max LTV – 80% for investment properties
Private Mortgage Insurance (PMI) is needed with a down payment of less than 20%. Typically 0.46% to 1.5% of the loan amount/ year decreases the more you put down upfront. No upfront insurance fee. Can be ended the moment equity reaches 20%.

FICO: 620+
DTI: 45/50
History: No Bk or foreclosure
Employment History: 2 years for W2 employees and self-employed (the amount of year can sometimes very if you’re in school or self-employed).
Property appraisal to determine value.
Documentation:
- Typical Documents: Typically full documentation (full docs) or alternative documentation (alt-docs) depending on lender requirements and borrower qualifications.
- Unique Documents: Depending on the lenders policies and specific loan program, additional documents such as bank statements, tax returns, W-2 forms, pay stubs, and proof of assets may be required.

Conforming Loans: Follow guidelines set by Fannie Mae and Freddie Mac.
Non-Conforming Loans (Jumbo Loans): For amounts exceeding conforming loan limits.
Portfolio Loans: Held by the lender instead of being sold on the secondary market, providing more flexibility in terms and requirements.
HomeReady and Home Possible Loans: Conventional loan options with low down payment requirements and flexible eligibility criteria, suitable for low to moderate-income borrowers.
Conventional Renovation Loans: Allow buyers to finance both the purchase price and renovation costs in one loan, such as Fannie Mae's HomeStyle Renovation Loan or Freddie Mac's CHOICE Renovation Loan.

Fannie Mae and Freddie Mac provide liquidity by purchasing mortgages.
Private lenders, banks, credit unions, and mortgage companies also originate and fund conventional loans.

Common misunderstandings with conventional loans include:
- Assuming a large down payment is required: While conventional loans may offer lower down payment options compared to some government-backed loans, borrowers may still qualify with as little as 3% down.
- Overlooking PMI requirements: Borrowers should be aware of the potential need for private mortgage insurance if their down payment is less than 20% of the purchase price, which can add to the overall cost of the loan.
- Neglecting to shop around for rates: Interest rates and terms for conventional loans can vary among lenders, so it's essential for borrowers to compare offers from multiple sources to ensure they get the best deal.